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Pfizer & AstraZeneca...No Need For Government Meddling

American pharmaceutical giant PfizerPfizer Inc. reported on Monday, May 5th quarterly revenue that was shy of Wall Street expectations. Sales of established patented brands and generic drugs declined and so highlighted one reason why Pfizer appears relentless in its pursuit of UK rival AstraZenecaAstraZeneca as it seeks ways and means to drive future top and bottom line growth.

The approach to AstraZeneca if successful would be the largest acquisition of a British company by a foreign business. So far, even with an improved bid of GBP63Bn or USD106Bn has not been met with approval from the AstraZeneca board.

The cash-and-stock offer is pitched at a premium of GBP a share cf. the level of GBP46.84 at 12:48 GMT on May 6th.

AstraZeneca Chairman Leif Johansson has said:

“Pfizer’s proposal would dramatically dilute AstraZeneca shareholders’ exposure to our unique pipeline and would create risks around its delivery, …As such, the board has no hesitation in rejecting the proposal.”

Even with the improvement the prevailing market sentiment is that Pfizer’s bid is too reliant on equity and substantially undervalued AstraZeneca.

Under takeover rules in the UK, Pfizer has till May 26th to announce a firm intention to make an offer or else it must walk away and accept failure on this occasion.

Political Football:

The UK is now just over one year away from a general election and the question of Pfizer acquiring AstraZeneca is proving to shine a light on the attitude to free markets of the three established political parties. So much so that the coalition of Conservatives and Liberal Democrats could start unravel earlier than one would expect as the general election draws ever closer.

Vince Cable, the Liberal Democrat Business Secretary has stunned his Conservative colleagues. He has offered a broad welcome to a Labour proposal mooted by the leader of the Opposition, Ed Miliband to expand the public interest test to protect Britain’s “strategic” science base. In direct contrast, the Conservative Party Chairman, Grant Shapps, said Mr Miliband’s proposal was “…anti-business, anti-jobs and anti-jobs security…”.

On this issue, the author fully agrees with the Conservative Party position. Indeed Sir Richard Sykes, Chairman of GlaxoSmithKlineGlaxoSmithKline until 2001 and now Chairman of The UK Stem Cell Foundation and Non-executive Director of Lonza AG said that the ownership of AstraZeneca was “…irrelevant…”.

Ian Read (British) and CEO of Pfizer has made considerable efforts to reassure the UK government that the acquisition of AstraZeneca is not a plan to torpedo the R&D pharmaceutical base in the UK. In dialogue with the Prime Minister, David Cameron and the Chancellor, George Osborne he promised to complete a substantial Pfizer R&D facility in Cambridge and to employ at least 20% of the combined company’s total R&D workforce in the UK. Mr Cameron has insisted the takeover is a matter for shareholders but the Labour leader has accused the Prime Minister of being a cheerleader for the deal.

Opponents to the deal have suggested that such an assurance is riddled with caveats that could see Pfizer quit the UK if circumstances were to change.

Why should that be a reason for objection? Any private sector corporation wishes to operate in the best commercial environment. If in May 2015 the UK were to elect a Labour led government that sought to impose high taxes on business it would not be in the shareholder interest for a board to continue operations in a disadvantageous environment if it did not have to. Once again the left of centre opposition in the UK shows that it does not understand the private sector market nor the free flow of capital and the wealth effect of shareholder value. It increasingly seems that if Labour is elected into power next year then the UK need only look across the channel to France to see how well the economy will be managed.

Committee Curse:

Just when the UK has created an attractive business environment the spectre of political interference looms large. Two committees of MP’s, Science & Technology and Business, Innovation & Skills have issued a summons for representatives of Pfizer and AstraZeneca to attend separate hearings.

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